Image: FedEx’s shares have come roaring back since its bottom in the back half of 2022.
By Brian Nelson, CFA
FedEx (FDX) recently reported mixed fiscal second quarter results with the company missing on the top line, but beating the consensus forecast for non-GAAP earnings per share. Non-GAAP adjusted revenue fell to $22 billion from $22.2 billion in the prior-year quarter, while adjusted operating income dropped to $1.38 billion from $1.42 billion in the same quarter of fiscal 2024. Its adjusted operating margin fell to 6.3% from 6.4%, while adjusted net income fell to $0.99 billion from $1.01 billion previously. Thanks to share buybacks, adjusted diluted earnings per share increased to $4.05 from $3.99 in the prior-year quarter.
Consolidated operating results were negatively affected by lower-than-expected FedEx Freight revenue and profit, as sustained weakness in U.S. industrial production continued to pressure less-than-truckload industry demand. The lower FedEx Freight results were mostly offset by cost reduction benefits at Federal Express from DRIVE program initiatives and higher base yields at each transportation segment.
Federal Express segment adjusted operating results improved during the quarter, driven by cost reduction benefits from DRIVE, higher base yield, and increased international export volume. These factors were partially offset by higher wage and purchased transportation rates, the expiration of the U.S. Postal Service contract for transportation services on September 29, 2024, and U.S. domestic package demand weakness.
FedEx Freight segment operating results decreased during the quarter due to fewer shipments, lower fuel surcharges, and reduced weight per shipment, partially offset by higher base yield. Last year’s second quarter operating income included a $30 million gain on the sale of facilities.
Looking to fiscal 2025, FedEx revised its revenue and earnings forecasts lower again. Revenue is now expected to be “approximately flat” year over year compared to the prior forecast calling for a low single-digit percentage increase. Diluted earnings per share before mark-to-market retirement plans accounting adjustments is now targeted in the range of $16.45-$17.45 compared to its prior forecast of $17.90-$18.90.
Also excluding costs related to its business optimization initiatives, management is targeting diluted earnings per share of $19.00-$20.00 per share, down from $20.00-$21.00 per share previously. FedEx announced it will separate FedEx Freight as a new publicly-traded company, hoping to garner a higher multiple placed on the spinoff, but we’re not interested in shares of the company or its spinoff at this time. Shares yield 2%. Our favorite ideas remain in the newsletter portfolios.
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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